The Reserve Bank of India has taken the right steps to address the issue of concessional swaps against Foreign Currency Non-Resident (FCNR) deposits, the Financial Stability and Development Council (FSDC) said.
During a meeting chaired by Finance Minister Arun Jaitley the FSDC said: “On the issue of maturity of concessional swaps of 2013 against FCNR deposits during September-December 2016, FSDC noted the steps taken by RBI to suitably address the issue and its consequences,” according to a statement from the Finance Ministry.
According to RBI data, banks had raised about $34 billion through FCNR (B) deposits in 2013, most of which are due this year. In 2013 the rupee was at an all-time low of 68.85 against the dollar and the central bank had asked commercial banks to raise the foreign currency deposits to shore up reserves. The RBI estimates that the immediate effect of the maturity of these deposits would be an outflow of about $20 billion.
“The major challenges before the Government include a strategy to improve the overall performance of public sector banks, to make stalled projects functional and economically viable and to increase private sector investment,” Mr. Jaitley said during the 15th meeting of the FSDC, which included Minister of State for Finance Jayant Sinha, RBI Governor Raghuram Rajan, Finance Secretary Ashok Lavasa, Economic Affairs Secretary Shaktikanta Das, Financial Services Secretary Anjuly Chib Duggal, Chief Economic Adviser Arvind Subramanian, SEBI Chairman U.K. Sinha, IRDA Chairman T.S. Vijayan, and PFRDA Chairman Hemant Contractor.
Mr. Jaitley said that a better spread of the monsoon meant that the government could expect higher production of pulses this year, which should ease their prices in the market.
The Council noted that uncertainty in the global economy and high volatility in the financial markets are prominent risks confronting the emerging market economies.
“India, however, appears to be much better placed today on the back of an improvement in its macroeconomic fundamentals, recent financial sector reforms by the Government and large forex reserves, which provide a cushion against financial market volatility,” the FSDC noted.
“With the revival of sentiment and certain signs of pick-up in industrial activity, a good monsoon is expected to further strengthen growth in India.” However, the members of the Committee agreed on the need to continue to be in a state of preparedness in case of external sector vulnerabilities, including those emerging from Brexit and its consequences.